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THE EFFECTS
OF GLOBAL FINANCIAL CRISIS ON JOB INSECURITY IN NIGERIA
ABSTRACT
The study
examined the effects of global financial crisis on job insecurity in Nigeria.
The other objectives set for the study are to ascertain the causes and effects
of global financial crisis in the Nigeria using a case study of ECOBANK PLC.
Primary data relating to the number of workers retrenched, profitability and
turnover were collected from the Statistics Department of ECOBANK PLC. Also,
the study made use of a well-constructed, validated and reliable questionnaire
to collect data from 120 randomly selected employees of the bank. The multiple
regression analysis and the chi-squared technique were employed to analyze the
collected data. The results indicated that profitability and turnover, which
were proxies of global financial crisis, were statistically significant on job
insecurity, which was proxied by the number of employees retrenched, in the
pre-global financial crisis period and post-global financial crisis period. In
furtherance, the study discovered that high credit culture, inadequate
regulatory framework for financial institutions, high incidence of fraud, high
financial outflow amongst others are the
significant causes of global financial crisis in Nigeria. Also, the
results unveiled that oil glut, declined GDP, increased rates of poverty and
unemployment, declined foreign direct investment amongst others are significant
effects of global financial crisis in Nigeria. To this end, the study suggested
that employment friendly and employment growth strategies should be formulated
to mitigate the pervasiveness of job insecurity in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria is
interlinked with the global financial system. The global financial crisis
emanated from the economy of the United States in 2007 and later spread to
other developed economies of the world in 2008 and subsequently transmitted in
that same year to less developing countries, inclusive of the Nigerian economy
.The global financial crisis further destabilized the economy of Nigeria, which
was initially bedeviled with the challenges of economic instability,
inconsistency in government policies, lack of transparency in the financial
markets, corruption, political instability, high rates of poverty and
unemployment amongst others. Government till date has been facing the effect of
global financial crisis on the domestic economy. Nigeria a part of the global
economy is bounded to face the micro and macro adverse effects of global
financial crisis.
The global
financial crisis started as a series of ineptitude in the financial markets,
leading to credit and liquidity crises, which resulted into the fall of several
giant financial institutions in conjunction with the loss of confidence in the
banking sector. The crisis further spread to the real sectors, resulting to
decline in the level of aggregate demand, economic retardation and job losses. The pace at which the crisis transmitted to
other countries regardless the level of their development has made people to
term the menace as “global financial meltdown”, global economic meltdown”
global credit crunch” etc.
A financial
crisis often featured by credit crunch, which means a disorderly contraction in
money supply and wealth creation ((Obadan, 2008). A credit crunch occurs when
participants in an economy lose confidence to have loans as well as recall
existing loans. The great depression occurred after a dramatic expansion in
debt and money supply in 1920’s. Then, a contraction also took place between
1929 and 1933 as debt was defaulted upon further resulted into a huge decline
in the supply of money.
The origin
of the global financial crisis is traceable to rapid risky debt accumulation.
The transmission of the crisis across the globe is due to the fact that the
world economy has become increasingly interlinked as a result of the forces of
globalization, operating through the network of global economic and social
linkages (Onudugo, 2009; Onyukwu, 2009).
The domestic economy is connected to the rest of the world economy
through three markets: product market, factor market and assets market (money
and capital markets). The rest of the world and the domestic economy access the
world economy through these three markets.
Although,
the global financial crisis is caused by the credit crunch in the United
States, it has spread to almost all countries’ economies through trade and
financial linkages and the implications such as job insecurity and
retrenchment, reduction in foreign development and oversea development
assistance, increased impoverishment, declined revenue amongst others, have
been found to be uniform in the economies affected by this crisis.
1.2 STATEMENT OF PROBLEMS
The impact
of global financial crisis on the Nigerian economy is multisectoral, as it cut
across all sectors of the Nigerian economy. The global financial crisis
resulted into depreciation of the naira, declining capital inflows, capital
market collapse, divestment by foreign investors, decreased profitability and
turnover of various firms. These negative impacts weakened the efficiency of
the banking sector and gave rise to stock market crash, which undermined the
confidence of the banking sector.
The global
financial crisis led to a decline in the level of gross domestic product,
consumer spending, consumer demand and industrial output. Unemployment rates
rose as firms were no longer able to pay salaries. The price of crude oil fell
from a peak of $147 per barrel in 2007 to $33 per barrel in December, 2008,
given the fact that Nigeria solely depended on oil during that period. The
dramatic decline in price of oil resulted into a sharp drop in the revenue
generated by the Nigerian government due to the fact that oil contributes over
90% to revenue, over 85% to foreign exchange earnings and about 33% to GDP as
at time frame.
The Nigerian
economy was bedeviled with series of global financial disasters. The purchasing
power of the people was eroded as the prices of commodities sky-rocketed and
the living standard of the populace dwindled.
Major businesses, firms and companies winded up, inflation and
unemployment rates were increasing out of control, food scarcity existed and
the prices of stocks defied the predictions of the bookmakers.
The global
economy was in recession as the gap between global economic potential growth
and the actual performance widens in 2009, especially in the first quarter of
that year. Many families were rendered homeless, many people were rendered
jobless and peoples’ aspirations were killed.
This crisis penetrated among different economic agents across the
countries.
1.3 OBJECTIVES OF THE STUDY
The main
objective of the study is to examine the impact of global financial crisis on
job insecurity in Nigeria. Other sub- objectives of the study are:
To examine the causes of global financial
crisis in Nigeria.
To ascertain the effects of global
financial crisis in Nigeria.
1.4 RESEARCH QUESTIONS
Based on the
objectives stated above, the study attempts to provide satisfactory answers to
the following research questions.
To what extent did global financial crisis
impact on job insecurity in Nigeria?
What are the causes of global financial
crisis in Nigeria?
What are the effects of global financial
crisis in Nigeria?
1.5 RESEARCH HYPOTHESES
In
accordance with the objectives of the study, the following hypotheses were
formulated.
Hypothesis
1:
H0: Global financial crisis has no significant
impact on job insecurity in Nigeria.
H1: Global financial crisis has significant
impact on job insecurity in Nigeria.
Hypothesis
2:
H0: Consumption-driven economy, poor savings,
high credit culture, huge financial outflow, inadequate regulatory framework
for financial institutions, High cases of fraud and corruption are not causes
of global financial crisis in Nigeria.
H1: Consumption-driven economy, poor savings,
high credit culture, huge financial outflow, inadequate regulatory framework
for financial institutions, High cases of fraud and corruption are causes of
global financial crisis in Nigeria.
Hypothesis
3:
H0: Oil glut, decline GDP, collapse of capital
markets, reduced foreign direct investment, decreased living standard,
unemployment, increased poverty and inflation are not effects of global
financial crisis in Nigeria.
H1: Oil glut, decline GDP, collapse of capital
markets, reduced foreign direct investment, decreased living standard,
unemployment, increased poverty and inflation are effects of global financial
crisis in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The study
examined the impact of global financial crisis on job insecurity in Nigeria.
Since Nigeria is part of the global village, it therefore necessitates that
whatever happens in the Western world especially the developed economies will
surely affect the Nigerian economy.
The study
through the findings will enable Nigeria to think globally and act domestically
to maximize the benefits of globalization and minimize its inherent costs and
challenges. It is no doubt the study will be useful individuals, firms,
financial sectors, private investors, stakeholders in the Nigerian economy,
telecommunication sector, foreign investors, government and many others on how to formulate sound
policies that will offset the adverse consequence of prospective domestic,
continental and global financial crisis.
1.7 SCOPE OF THE STUDY
The study
examined the impact of global financial crisis on job insecurity in Nigeria by
prioritizing on ECOBANK PLC as case study.
1.8 LIMITATIONS OF THE STUDY
Three
limitations were encountered in the study namely time constraint, financial
constraint and disposition of respondents.
The time
allocated to conduct the study was relatively short combined with other
academic commitments of the researcher.
Due to
limited fund, the researcher was unable to increase the coverage of the study
by considering other firms in different economic sectors of the Nigeria
economy.
The attitude
of the respondents, who were employees of ECOBANK, was not remarkable. Few of
them were reluctant to participate in the survey. Some of them were diplomatic
in answering the questions because they felt they might disclose the secrets of
their organization.
1.9 METHODOLOGY
For the
first research question; two models were developed namely pre-global financial
crisis period (2003-2006) and post-financial crisis period (2008-2011). Job insecurity proxied by the number of
employees that were retrenched in ECOBANK was adopted as the dependent variable
and global financial crisis was proxied by the profitability and turnover of
ECOBANK. Plc was taken as the explanatory variables.
Data on
these 3 proxy variables were sourced from the Bank at their head office.
Regression analysis was employed to estimate the impact of global financial
crisis on job insecurity.
For the
second and third research questions, well-structured questionnaires were
administered to the employees of ECOBANK to seek their opinions on the causes
and effects of global financial crisis in Nigeria. The Chi-Squared Technique
was then adopted to test the hypothesis on the causes and effects of global
financial crisis in Nigeria at 5% level of significance.
1.10 DEFINITIONS OF TERMS
Financial
Crisis: This refers to a sudden drop in the value of financial assets or firms
managing those financial assets.
Economic
Crisis: This refers to the sudden
negative downtrend of events in the economy.
Economic
Recession: This refers to the decline in the growth of the gross domestic
product between two consecutive economic periods. It is characterized by drop
in trade and industrial activity in an economy.
Economic
Meltdown: This refers the slow-down in economic activities that started in USA
and spread all whole over the world between 2008 and 2009.
Job
Insecurity: This refers to the condition where employees lack the assurance
their jobs will remain stable from day to day, week to week and year to year.
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